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Next Stimulus Must Be for the Housing Market: Hays

As investors anxiously wait to see whether or not Fed Chairman Ben Bernanke has another rabbit up his sleeve, at least one pro is calling for the next round of stimulus to come from the government rather than the Federal Reserve.

"If you look at the economy, it is slowly coming back, but there is one area - a massive area - that has hit this economy for the last two years, and its housing," says Don Hays, President and Chief Investment Strategist of Hays Advisory. He wants policymakers to try something new and different that will jump-start the entire economy, not just the banking sector. As much as stimulus has become a much harder sell in Washington, D.C. these days, I think a populist pitch to prop up housing might just catch on.

Hays is particularly fond of a proposal that is being circulated by Ed Yardeni that would make rental income tax-free for a decade to encourage investment into vacant homes. Given the dubious benefits derived from the first few rounds of stimulus and easing, a handout to housing seems at least worth a try.

"We have 2.2 million people in the housing construction industry that are still out of work and cannot get a job so that is the place that has to be stimulated," Hays says. "We think that is the one area that has not had the same long term encouragement."

Normally, when economies are rebounding, housing is a locomotive. But this time Hays says it has been a "terrible laggard" that has been left behind. Whether you agree or disagree, the reality is that housing plays an outsized role in our economy and to attempt to repair one without the other just doesn't make sense.

As Hays sees it, a shot-in-the-arm for housing would lead to knock-on effect for the broader economy, a spiral-effect that would feed on itself for the better. "People feel more optimistic. Banks start lending. Companies start hiring more and it sort of feeds on itself and that's what we have to have, that stimulus, that fuel, to kick-start the economy."

Hays is clear in pointing out that this is not an investment idea, but something for Washington, D.C. to consider as a starting pointing at a time of great hunger for fresh solutions. Nothing ventured, nothing gained?

Let us know your thoughts in the comment section below.